Yesterday, Porsche went through more mood swings in a single day than a manic depressive in three months. In the morning, Munich’s Süddeutsche Zeitung, usually well clued into high level auto gossip in Germany, had the good news that the public prosecutor in Stuttgart had dropped most of the investigation into former Porsche CEO Wendelin Wiedeking and former CFO Holger Härter. Supposedly, no evidence of share price manipulation was found. With that out of the way, the formal amalgamation of Porsche into Volkswagen could now progress at full speed, said the paper. However, they were misinformed.

Later in the day, it became known that only half of the share price manipulation probe was dropped. The duo is still a target of preliminary proceedings for having withheld pertinent information. To make matters worse, the prosecutor opened another inquest against Wiedeking and Härter for embezzlement.

Late on Wednesday evening, Porsche issued a bleak statement. The new situation definitely delays, possibly derails the fusion of Volkswagen and Porsche, the statement said. “From the management board’s view this also reduces the probability that the merger can be achieved under the timeline of the basic agreement from previous 70 percent to 50 percent.”

The man who holds the future of Porsche in his hands is Siegfried Mahler. He heads the public prosecutor’s office in Stuttgart. He declared that the proceedings will “surely drag on well into 2012.”

Please note that what is delayed is the legal part of the merger. Once Volkswagen formally owns Porsche, Volkswagen is exposed to any claims against the company. As long as they don’t formally own Porsche, Volkswagen’s deep pockets are off-limits to any litigants. Volkswagen will wait until any potential claims go away. Otherwise, Volkswagen and Porsche are for all practical purposes merged.

Says Der Spiegel: “VW CEO Martin Winterkorn wants to integrate Porsche into the group as the tenth brand. The legal problems notwithstanding, these plans are unlikely to change. In the event of a failed merger, Wolfsburg could buy the remaining Porsche shares outright.” At a greatly reduced price, that’s for sure.

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6 Comments on “Panic At Porsche...”

Shocking indeed that a CEO of a major corporation would be prosecuted for manipulating share prices to his own benefit. If this sort of despicable dishonesty were to happen in the U.S., no doubt justice would be swift….
NOT!
In the meanwhile, good luck to those dedicated Porsche employees and customers; let’s hope the wonderful cars remain unscathed.

Is there really any doubt that Porsche engaged in stock manipulation? Any doubt at all?
The real question is the politics of it. Can Porsche/VW exert enough pressure to get the government to continue looking the other way?

IIRC there are quite reasonable legal doubts about that. One has to remember, that the strategy Porsche used in its takeover (try) of VW, namely buying options via multiple banks to circumvent normal announcements, is not always illegal in germany. Courts have declared that the legality defends on the definition of the options used…

The main legal question against Wiedeking and Haerter (or Porsche in general) is iirc, if they or the company, knew about their plans to reach 75%, when they announced their wish to only go slightly beyond 50% at earlier times (March 2008) or only talked about a minority share (back in 07) and therefore lied to investors, etc. Knowing if that is true might be difficult, proving it to a court even more so…

However as Bertel mentioned, this is about the merger of the holding company Porsche SE and Volkswagen, which basically only has holdings in two other companies: 50.x% in VW, 50.1% in Porsche AG (basically everything else Porsche puts it name on – cars, engineering, part of the designs). So if the merger doesn’t go through and VW buys out Porsche AG from Porsche SE it might essentially leave its owner company a rather hollow one.

(Also don’t confuse the holding company Porsche SE with the company Porsche Holding GmbH, which is the austrian/eastern european importer and car dealership). That was also sold to VW, but seperately and never had anything (directly) to do with the whole TakeOver business…

I wonder if the disclosure laws are different in Germany than in the USA. I got the impression Porsche was buying stock but was not required by law to disclose this, thus, the manipulation was more possible.

IIRC, and I may not, Porsche bought options and had no duty to disclose what they controlled under German law. That was how the hedgies got caught in a short squeeze. Porsche owned 40+%, optioned 30+% and Lower Saxony owned another 20% which they would not sell. Instant short squeeze and, truly, who gave a damn about hedge funds?

Thats partly true – german courts have ruled that it depends on the way those options are structured if they have to be disclosed like owned stock. This however should be the part of the investigations that has been dropped.
The open question is if Porsche/Wiedeking/Härter had the plan to take over 75% of VW all along, even when they said they only wanted a minority share (back in 07) or a slight majority (early 08). Thats certainly a hard thing to prove, which is why the prosecutors office said it would take more than the rest of the year to investigate…

However, VW managers internally said that it doesn’t really affect any of the operational business and cooperations done with Porsche. This is about the merger of the holding company Porsche SE and VW, not the Porsche AG, which builds cars and is now jointly owned by Porsche SE (50,1%) and VW (who are themselves owned by Porsche SE to 50.x%). And also don’t confuse that company with the “Porsche Holding GmbH” which is a completely different company, that had nothing (directly) to do with the whole takeover, but has also been sold to VW recently…)